I have changed my fan speeds to manual, but temps still seem to be the same.
I have tried open case too, but temp only drop by ~1-2 degress.

I am going to try and reseat it again tomorrow. Am I just appplying the compound wrong?

Fill in the valley's of the heatsink. Clean excess off.

Here is where I need suggestions, should I do the pea method or the 3-line method? (Or another method)
Should I apply it to the CPU or the heatsink itself?
For the 3-line method, how long are the lines suppose to be? (full/half/third length of the CPU?)

Another note: My friend mentioned the heat may be due to a poorly made CPU, is this true?

It is always possible that you "lucked out" and got a proc that runs hotter than others do.... if so, run it at stock with the stock cooler to see what temps you get. If they're above "safe" temps you might be able to rma it.